Management and Strategy Consulting
The management and strategy consulting industry started to formalize at the turn of the 20th century. At that time, new machinery was being introduced to speed up manufacturing processes and increase the production of various products, from automobiles to grocery items such as canned goods. As manufacturing accelerated, companies soon realized the importance of streamlining their operations and workers, and they sought the help of business experts to improve their productivity. The earliest management consulting firm was created by Arthur D. Little, a professor at the Massachusetts Institute of Technology. He founded the firm in 1886 and it was incorporated in 1909. The Arthur D. Little company helped solve problems for early clients such as the New England Telephone and Telegraph Company (now Verizon New England), the U.S. Forest Service, and General Motors. The company has since grown to be a global consulting firm, offering management consulting services to help companies resolve complex business issues to achieve results.
Another early management and strategy consultant was Ivy Ledbetter Lee, whose expertise was sought in the early 1900s to help improve the reputation of coal mine operators. Lee was retained to advise them on their communications strategy, which had previously been to divulge as little information as possible about their mining activities. The public’s perception of coal mine operators improved when they started to follow Lee’s advice by sharing information and responding to questions from the press and the public. Lee went on to consult for the Pennsylvania Railroad Company, the Rockefeller family on behalf of their various investments and businesses, and various other clients.
The management and strategy consulting industry has also drawn on the ideas and practices of James O. McKinsey, a former professor of accounting at the University of Chicago. In 1926, he established the consulting firm McKinsey & Company. As described in a Harvard Business School article, James McKinsey’s top contribution in the management consulting field was “focusing attention on budgeting as a major instrument of management. He asserted the need for continued education for future executives and foresaw the era of the ‘scientific man’ in business, [meaning] an era characterized by careful planning and research.” McKinsey passed away in 1937, and his work was continued by Marvin Bower, who further enhanced the management consulting industry’s reputation for professionalism and expertise. Bower was known also for his focus on recruiting highly educated employees for consultant roles, particularly those who held a master’s in business administration. Today, McKinsey & Company is among the top global consulting companies.
The Great Depression in the 1930s took a toll on many companies and people in the United States. The failure of the financial system raised companies’ awareness of the significance of having efficient business operations and strategies and plans in place for sustainability and maintenance, particularly during emergency situations. In 1933, the Glass-Steagall Act was passed to separate investment banking from retail banking, which helped to protect depositors’ funds. There were other banking and financial reforms during that time to help protect banks and the general public. The demand then grew for management and strategy consultants with knowledge of financial management, banking, and accounting practices.
During World War II, the U.S. government hired management and consulting firms to advise them on wartime production processes, such as the manufacturing of armaments, as well as human resources management at manufacturing plants. Management and strategy consulting firms continue to provide consulting services to various government agencies, to improve productivity and profitability.
The management and consulting industry grew in popularity over the next few decades and by the 1970s, many consulting organizations were establishing offices in countries around the world. In the 1980s and 1990s, the growth of computers and the Internet gave consultants another area of expertise in which to work: information technology. Consulting firms that specialize in tax and accounting systems have also been in high demand since the 1990s, due to the continual tightening of tax laws and government regulation of businesses and financial services.
Legislation that has impacted the management and strategy consulting industry includes the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Sarbanes-Oxley Act was passed in 2002 to address accounting and corporate governance scandals. The SOX Act placed stricter controls on corporations and the accounting industry, which has meant that the top executives at companies are mandated to certify the accuracy of their companies’ financial reports. The Dodd-Frank Act was passed in 2010, in response to the financial recession of 2007-2008. Many new government agencies were created under the Dodd-Frank Act to oversee various sectors of the financial system, including banks, credit rating agencies, and mortgage lenders. In 2018, Congress rolled back some of the restrictions of the Dodd-Frank Act.
The management and strategy consulting industry continues to thrive, helping various businesses, nonprofit organizations, and government agencies to improve and enhance their operations. Today it generates nearly $260 billion in revenue and is expected to continue growing and expanding in the coming years, offering more opportunities for professionals with expertise in administration, organizational, and strategy consulting.